Advocates urge say-on-pay votes at annual meetings

Regulators should make public companies hold a vote on the pay packages of top executives, say investors advocates, with compensation expected to be a major issue at the annual general meetings of some of Canada’s biggest corporations this year.

Canadian shareholders typically head to annual meetings in April and May, where some but not all companies give them a say on executive pay through advisory motions. While the motions are nonbinding, they can be uncomfortable for highly paid CEOs and spur corporate boards to review compensation.

The issue was highlighted on Thursday when TransAlta Corp. shareholders voted down the power plant owner’s executive pay plan, under which chief executive Dawn Farrell received a special one-time payment for “extraordinary leadership” as part of her $7.39 million in total compensation.

“Say-on-pay votes now should be the norm in Canada. They’re not,” said Kevin Thomas, director of shareholder engagement at the Shareholder Association for Research and Education.

Stephen Erlichman, executive director at the Canadian Coalition for Good Governance, which has long advocated for mandatory say-on-pay shareholder votes, says Canada has become an outlier in the world with many other countries already requiring them. Such votes focus boards on being able to explain pay arrangements “in the plainest English that is possible,” he said.

Several big names in Canada have seen their say-on-pay motions go down to defeat.

Barrick Gold, which holds its annual meeting on Tuesday, saw its advisory motion on executive pay turned down by shareholders in 2013 and 2015. CIBC saw its motion rejected in 2015.

Among those to watch this year will be a pair of corporate Canada’s biggest names — Bombardier and Canadian Pacific Railway — when their shareholders meet in May.

CP Rail, which saw its executive pay plan voted down in 2016, made changes this year to cut back perks and place greater emphasis on safety and operating income.

Meanwhile, Bombardier modified its plan this year after public outrage at the increases awarded to executives even as the company slashed staff and received government assistance.

There were 177 Canadian companies that held a say-on-pay vote last year compared with 157 in 2015 and 28 in 2010, according to shareholder services and advisory firm Kingsdale Advisors.

Victor Li, executive vice-president of governance advisory at Kingsdale, said low shareholder support for pay plans can prompt companies to engage shareholders and improve transparency for executive compensation even though the votes are non-binding.

“Nobody wants their say-on-pay to be 51 per cent,” Li said.

“If the say-on-pay is below 90 per cent, for many companies it is considered a fail and they have to do something,” he added. “They have to talk to shareholders and understand who voted against and why.”

Non-binding say-on-pay motions came to prominence in the wake of the financial crisis with changes that required U.S. publicly traded companies to include a shareholder resolution to approve executive compensation.

Legislation in Britain, Australia and some European countries also requires public companies to give shareholders a say on pay.

The Ontario Securities Commission, which has been monitoring developments in other jurisdictions, said it is the primary responsibility of the board and its executive compensation committee to ensure that pay practices promote long-term shareholder value.

“However, securities regulators may mandate say-on-pay if boards fail to take executive compensation seriously and we determine that mandating say-on-pay would further our mandate to protect investors, foster efficient capital markets and ensure confidence in our markets,” said Naizam Kanji, director of the office of mergers and acquisitions at the provincial regulator.